Controls
Need to Be Strengthened to Ensure the Modernized e-File Project Meets Its
Expectations

September 2005

Reference Number:† 2005-20-103

This report has cleared the Treasury
Inspector General for Tax Administration disclosure review process and
information determined to be restricted from public release has been redacted
from this document.

This report presents the results of our review of the
Modernized e-File (MeF) project.† The
overall objective of this review was to determine whether the MeF project
sufficiently addressed issues to ensure successful deployment of future
releases and accurately reported its expected benefits to external
stakeholders.† This review is part of the
Treasury Inspector General for Tax Administrationís Fiscal Year 2005
Information Systems Programs audit plan for reviews of the Internal Revenue
Serviceís (IRS) modernization efforts.

Synopsis

Providing the
capability for Internet-based filing of 330 tax return forms through the MeF
system supports and facilitates the IRSí commitment to achieve the IRS
Restructuring and Reform Act of 1998[1]goal of receiving ďat least 80 percent of
all tax returns in electronic form by the year of 2007.Ē† The
MeF project currently has plans for seven releases[2]and is currently involved in completing
development of Release 3.2.† The first
three releases provided an electronic filing system for forms filed by corporations
and tax-exempt organizations.† The
remaining releases will add forms and schedules filed by partnerships, estates,
trusts, and individuals.†

Problems in meeting four performance requirements caused the
project team to defer them from MeF Release 1 to Release 3.1.† During development of Release 3.1, two of
these performance requirements were met.†
The MeF team provided documentation showing that a third requirement
subsequently passed testing.† However,
the remaining performance requirement has not met the performance
specifications to display tax and information returns within stipulated time
periods.† The ability to display returns
within stipulated time periods will help ensure the efficiency of IRS personnel
who access returns through the MeF system.

Further, the MeF project is dependent on software developers
to provide the applications enabling the large file-size corporate return
filers to use the MeF system.† In January 2005, the Department of the
Treasury issued regulations mandating further electronic filing requirements
for corporations and exempt organizations.[3]†The
corporate community expressed a negative response by claiming the mandate
presumes a level of uniformity and technological sophistication taxpayers and
the IRS may not yet have achieved.† The
MeF Release 3.2 includes requirements to support increased return volumes based
on projections due to the mandate.† If
the MeF project is unable to meet the increased return volumes, the
corporations will be unable to meet the Department of the Treasury electronic
filing requirements.

The MeF Release 3 also included the requirement to develop
the Federal/State Single Point Filing System which will permit taxpayers or
practitioners to submit multiple Federal and State return types within one transmission through the MeF system.† The MeF project team realized the scope
of the Federal/State Single Point Filing System requirement and determined it
could not be supported by the existing IRS processing systems.† The project split Release 3 into Releases 3.1
and 3.2, deferring the Federal/State Single Point Filing System for delivery as
part of Release 3.2 in January 2006.† The
Business Systems Modernization Office (BSMO) estimates MeF Release 3.2
deployment will cost an additional $16.3 million to include development of the
Federal/State Single Point Filing System requirement.

Although the MeF project has provided value to taxpayers and
IRS processes, the project team did not follow control processes to ensure all
project requirements were developed.† In addition, system requirements were
not adequately controlled, making it difficult to assess whether all
requirements were tested and delivered.

Processes to manage change requests[4]do not provide reliable information to monitor
project development.† Additionally, the
MeF projectís Work Breakdown Structure[5]does not reflect all change request
activities.† Without
adequate controls to implement change requests, the project team will have
difficulty allocating available resources to efficiently and effectively
implement all necessary requirements.

Finally, the MeF project team did
not establish a target submission date for mandatory change requests from its
IRS customers.† The MeF project team is
initiating plans to work with its customers to anticipate future mandatory
change requests that would affect the MeF project.

Recommendations

To help ensure the efficient and effective development of
modernization projects, we recommended the Chief Information Officer (CIO) ensure project teams follow established guidance for
managing requirements.† To help manage
the implementation of change requests, the CIO should
assign the Associate CIO, Enterprise Services, to update and formalize the
process to monitor change requests for use throughout the Modernization and
Information Technology Services organization.† Further, guidance should be established to include
change requests into the related work breakdown structure.† Additionally, to
ensure the project teams are aware of all anticipated changes affecting current
system development activities, the CIO should establish a communications
process with the Legislative Analysis, Tracking, and Implementation Services office and the business operating divisions.† The BSMO should also establish deadlines for
submitting mandatory change requests to ensure it can plan for their delivery.

Response

IRS management generally agreed to four of the five report
recommendations.† The CIO agreed to document
implementation of all project requirements throughout the project life cycle in
the System Requirements Report and to update all requirements traceability
verification matrices beginning with MeF Release 4.† The CIO
agreed there were inaccuracies resulting from the process to control
change requests to the MeF project applications and has since corrected those
inaccuracies as well as provided direction to projects responsible for the
maintenance and tracking of the change requests. †

The CIO agreed with the
recommendation to help ensure the project team is aware of all anticipated changes
affecting current system development activities.†The Electronic Tax Administration (ETA)
organization, acting as the MeF
Business Requirements Director, has a process in place to monitor the Legislative
Implementation Tracking System for pending and enacted legislation and to
reflect those changes as updated business requirements.† Through the Reverse Request for Information
Services process, the ETA organization reviews requests from other projects to
determine if there is an impact on the MeF project.† Monitoring the possible legislative changes
as well as reviewing in-process Requests for Information Services enables the ETA
organization to help determine the prioritization schedule for delivery of
business requirements to the BSMO.†

The CIO agreed with the recommendation about anticipating
change requests by stating the ETA organization
follows the established Business System Development Request for Information Services
schedule, as outlined in the Internal Revenue Manual, for projects being developed
by contractors to help ensure timely
implementation of change requests.† The MeF
project is not explicitly listed in the Internal Revenue Manual exhibit, but the
ETA organization applies this schedule for MeF project change requests.† Further, the ETA organization is establishing
a Forms Change Committee to gain management control over the annual forms change process.† This Committee expects to convene the
kick-off meeting in September 2005.

The CIO disagreed with the recommendation to control change
requests in the work breakdown structure, stating the
work breakdown structure is a planning tool to identify the tasks that need to
be accomplished and the relationships between those tasks. †In lieu of the work breakdown structure, the
MeF project team relies on the build schedules, change request impact assessments,
and change request status sheets maintained by the project to track the
implementation of change requests and the subsequent impact on the overall
project development.† We are concerned
these practices may
not adequately consider the effect of change requests with major staffing
implications.† Additional Office of Audit
comments are contained in the report.† †Managementís complete response to the draft
report is included as Appendix VI.

Copies of this
report are also being sent to the IRS managers affected by the report
recommendations.† Please contact
me at (202) 622-6510 if you have questions or
Margaret E. Begg, Assistant Inspector General for Audit (Information Systems
Program), at (202) 622-8510.

The Modernized e-File (MeF) projectís goal is to replace the
current technology for filing Internal Revenue Service (IRS) tax return forms
with modernized, Internet-basedelectronic
filing applications.† The MeF project
aims to increase electronic filing use through a system that is efficient and
easy to access, use, and maintain.† This
project serves to streamline filing processes and reduce the costs associated
with the paper-based technology.† Providing
the capability for Internet-based filing of 330 tax return forms through the
MeF system supports and facilitates the IRSí commitment to achieve the IRS
Restructuring and Reform Act of 1998[6]goal of receiving ďat least 80 percent
of all tax returns in electronic form by the year of 2007.Ē†

The MeF project
currently has plans for seven releases[7] and is currently involved in completing
development of Release 3.2.† The first
three releases provided an electronic filing system for forms filed by
corporations and tax-exempt organizations.†
The remaining releases will add forms and schedules filed by
partnerships, estates, trusts, and individuals.†
Although forms for partnerships, estates, trusts, and individuals can be
electronically filed now, the current process has file size and standardization
limitations that hinder achieving an 80 percent submission rate.

This audit is the second[8]
in a series of reviews of the MeF project development and deployment
activities.† This review was performed at
the Business Systems Modernization Office (BSMO) facilities in New Carrollton,
Maryland, during the period January through April 2005.† The audit was conducted in accordance with Government Auditing Standards.†Detailed information on our audit objective,
scope, and methodology is presented in Appendix I.† Major contributors to the report are listed
in Appendix II.†Appendix V presents an overview of the
components of the Enterprise Life Cycle.[9]

The MeF project has made progress in developing the
modernized, web-based platform for electronically filing IRS tax return forms.† The MeF project currently consists of several
releases.

∑Release 1 developed the infrastructure,
application base, and support for 53 forms filed by corporations and 6 forms
filed by exempt organizations.† This Release
became operational in February 2004.

∑Release 2 added the remaining 44 forms
associated with corporations and the public disclosure capabilities required by
the Tax Exempt and Government Entities Division. †This Release became operational in August
2004.

∑Release 3.1 incorporated Return of Private Foundation
or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private
Foundation (Form 990-PF) and the ability to file extensions for U.S.
Corporation Income Tax Return (Form 1120) and U.S. Income Tax Return for an S
Corporation (Form 1120S).† This Release
became operational in January 2005.

∑Release 3.2 will add the Federal/State Single
Point Filing System[10]
platform and the Federal/State components for Form 1120, Form 1120S, and Return
of Organization Exempt From Income Tax (Form 990).† This Release is planned to be operational in
January 2006.

As of April 24, 2005, the MeF project had received and
processed the following documents:

A
total of 229,245 corporate income tax returns and related applications for
extensions of time to file these returns.

A total
of 1,903 tax-exempt organization returns and related applications for
extensions of time to file these returns.

The value of the MeF project extends beyond providing taxpayers
the ability to file returns electronically via the Internet.† The IRS also receives benefits from this
electronic filing capability.† The IRS
has realized processing efficiencies with the MeF project and has generally met
all processing and resource performance goals.†
For example, in Fiscal Year 2004 the MeF project planned to reduce its
commitment from 364.86 to 364.73 Full-Time Equivalents (FTE)[11]
for processing the following returns:†
Form 990, Short Form Return of Organization Exempt From Income Tax (Form
990-EZ), and U.S. Income Tax Return for Certain Political Organizations
(1120-POL).† It was able to realize a
reduction in processing to require only 240.27 FTEs.

MeF project development
activities and applications are still being refined

In our previous audit of the MeF project, we recommended the
project team deliver a projectís physical design documentation prior to project
development activities and certify the design is in compliance with the
Enterprise Architecture.† Currently, the
Enterprise Architecture Office does not have a procedure for conducting
engineering reviews to certify a projectís physical design.† This procedure is under development because
of changes in the Enterprise Architecture Officeís personnel.

In addition, the MeF Release 1 deferred four performance
requirements.† Problems in meeting these
requirements caused the project team to defer them to MeF Release 2 and then to
Release 3.1.† During development of
Release 3.1, two of these performance requirements were met.

The two remaining performance requirements were deferred for
completion during the deployment of Release 3.1.† The MeF team provided documentation showing
that one of these requirements passed testing during release deployment.† However, the remaining performance
requirement has not met the performance specifications to display tax and information
returns within stipulated time periods.†
The ability to display returns within stipulated time periods will help
ensure the efficiency of IRS personnel who access returns through the MeF
system.

Further, the MeF project is dependent on software developers to
provide the applications enabling the large file-size corporate return filers
to use the MeF system.† The MeF project
team stated the software developers were aware of the MeF Release schedule but
did not develop the software applications to facilitate electronic filing of
large file-size corporate returns.

In January 2005, the
Department of the Treasury issued regulations mandating further electronic
filing requirements for corporations and exempt organizations.[12]†There
have been negative responses to the mandate by the corporate community claiming
the mandate presumes a level of uniformity and technological sophistication
taxpayers and the IRS may not yet have achieved.† The corporate community also believes the
mandate fails to account for the wide variety of computer software and technology used to prepare large businessesí tax returns.†

The IRS Commissioner
stated the IRS is giving the private sector adequate time to ready itself for
the new requirements. †The Commissioner
also stated the Department of the Treasury had to make the new requirement
mandatory, rather than giving taxpayers an option to file electronically, so
companies would not ďdrag their feet.Ē

The MeF project team
is developing requirements for Release 3.2 to support increased return volumes
based on projections due to the mandate.†
For corporations to meet the Department of the Treasury electronic
filing requirements, the MeF system will need to support increased return
volumes.

Originally, the MeF Release 3 included the requirement to
develop the Federal/State Single Point Filing System which will permit
taxpayers and practitioners to submit multiple Federal and State return types
within one transmission through the MeF
system.† The MeF system will make State
submissions available for retrieval by registered State agencies.

However, the MeF project team realized the scope of the
Federal/State Single Point Filing System requirement and determined it could
not be supported by the existing IRS processing systems.† Subsequently, in June 2004, the BSMO split
MeF Release 3 into Releases 3.1 and 3.2, deferring the Federal/State Single
Point Filing System for delivery as part of Release 3.2 in January 2006.†

In May 2004, the BSMO reported deployment of the MeF Release
3 would cost approximately $20 million.†
In February 2005, the BSMO reported the MeF Release 3.2 deployment will
cost an additional $16.3 million to include development of the Federal/State Single
Point Filing System requirement.

Although the MeF project has provided value to taxpayers and
efficiencies to the IRS processes, the project team did not follow control
processes to ensure all project requirements were developed.† We reviewed requirements documentation in the
MeF projectís System Requirements Report.†
The System Requirements Report documents a feasible, quantified,
verifiable set of requirements that define and scope the business system being
developed by the project.† These
requirements form the basis for the business system design, development,
integration, and deployment.† The project
System Requirements Report is the primary reference for all project
requirements needed to complete design and development of the business system.†

We also reviewed the System Integration and Testing[13]
reports, which include the requirements traceability verification matrices that
document the specific test cases and test results for each requirement.† We compared the System Requirements Report
with the System Integration and Testing report results to determine the status of the projectís
requirements.

The Enterprise Life Cycle directs project teams to verify the project
requirements have been baselined, are accounted for, and are consistent among
requirement source databases and documents.†
This includes matching and comparing the requirements text in the
System Requirements Report with the requirements text in the requirements
traceability verification matrices and ensuring requirements quantities are consistent
among all sources.† Further, the Enterprise Life Cycle
directs project teams to verify the contractor is maintaining the traceability
of project requirements for applications developed throughout the project life cycle.

From our review of the requirements traceability verification matrices,
we could not determine which requirements in the System Requirements Report
were successfully tested.† The MeF
project team stated requirements in the System Requirements Report are high-level
requirements and requirements in the requirements traceability verification
matrices are low-level requirements.† The
high-level requirements are general and further decomposed into low-level
requirements.† There is not a one-to-one
relationship between the requirements in the two documents.

The project team did not have documentation tracing the high-level to the
low-level requirements. †Our attempt to
reconcile the requirements in the System Requirements Report to the
requirements in the requirements traceability verification matrices was
unsuccessful.† For example, Table 1 presents
differences in the descriptions of performance requirements[14]
between the System Requirements Report and the requirements traceability
verification matrices.

Table 1:†
Descriptions of Performance Requirements

Requirement Report

Requirement
Description

System Requirements
Report

Display 1 to 10 documents
within 6 seconds,
95 percent of the time, under sustained peak hour loads of 30 concurrent
users.

These differences occurred because the project team did not
trace the System Requirements Report to the requirements traceability
verification matrices during the project testing process and throughout the
project life cycle.† Further, the MeF
project team did not update the System Requirements Report with the
requirements changes it made to the requirements traceability verification
matrices.† A detailed description of the
performance requirements in the System Requirements Report and requirements
traceability verification matrices is presented in Appendix IV.

Because the project
team did not ensure the requirements specified in the projectís System
Requirements Report were traceable to
the requirements in the requirements traceability verification matrices, the
adequacy of requirements development and testing activities is difficult to
assess.† Further, there is no assurance the requirements expected to be deployed are
the requirements that were actually deployed.

Recommendation

Recommendation 1:† To help ensure the efficient and effective
development of modernization projects, the Chief Information Officer (CIO)
should ensure project teams follow the Enterprise Life Cycle provisions for
managing requirements by tracing System Requirements Report requirements to the
requirements traceability verification matrices.† In
addition, the project team should document implementation of all requirements
throughout the project life cycle in the System Requirements Report.†
This control will provide assurance about the development of all
requirements.

Managementís Response:† The CIO agreed with
this recommendation, stating traceability matrices tie the detailed
requirements to the test cases. †The
missing backwards/upwards traceability to the high-level requirements does not
represent a significant risk factor to MeF Release 3.2. †Therefore, since MeF Release 3.2 is already in
flight and well into its life cycle development, and there are limited MeF project
resources available, the CIO will begin to update all requirements traceability
verification matrices starting with MeF Release 4.† Further, the CIO agreed to document
implementation of all requirements throughout the project life cycle in the
System Requirements Report.† The CIO
stated the project recognized the weakness of not capturing this information
during MeF Release 3.1 and implemented the change prior to completing MeF
Release 3.1 in March 2005.† The MeF
project team is now working to complete the Report column for all requirements.

Change request processing
is used to manage proposed changes affecting modernization products. †The Modernization and Information
Technology Services (MITS) organization has a procedure for processing change requests.[15]† This
procedure specifies change requests should be submitted for control to the
appropriate Configuration Management Office[16] which uses the PRIME contractorís[17] Change Request Tracking System.† The project teamís configuration management representative
is responsible for monitoring the Change Request Tracking System for change
requests that may affect their project.

The MeF project team is
unable to use the Change Request Tracking System to its full potential to
monitor change requests

The
change request procedure involves full use of the PRIME contractorís Change Request Tracking System and assumes the PRIME contractor is the modernization
program manager.† Because the BSMO is the
program manager for the MeF project, it is unable to use the Change
Request Tracking System to its full potential to
monitor and control its change requests.†
In addition, access to the Change Request Tracking System was limited, causing the MeF project team to monitor the
change requests using a manual system.

The
manual system involves maintaining hardcopies of the change requests, related
impact statements, and other supporting documentation in folders.† When a change request is approved, changes to
the Change Request Tracking
System are submitted via email from the MeF project
configuration management representative to the BSMO configuration management
staff.† The configuration management
staff updates the Change Request Tracking System
with the approval date.

Based
on our comparison of dates in the MeF change request folders and the Change Request Tracking System, we determined the dates in the Change Request
Tracking System were not always accurate.† Because the change request folders do not
include documentation about when the change request was implemented by the
contractor, we had to rely on other project development documents to estimate when
the change request was implemented.

Of the
27 Release 3.1 mandatory change requests[18] submitted in Calendar Year
2004, only 22 included approval and implementation dates on the Change Request Tracking System.† The Change
Request Tracking System status shows the remaining
five mandatory change requests as pending approval, although project
development documentation shows they were approved and implemented.

We
found discrepancies in approval dates for 8 of 22 mandatory change requests.† The discrepancies in approval dates ranged
from 5 days to almost 2 months, with an average difference of 33 days. †We also found discrepancies in the implementation
dates for all 22 mandatory change requests.†
The discrepancies in implementation dates ranged from 4 days to 3
months, with an average difference of 52 days.

The
BSMOís configuration management staff was reassigned on March 20, 2005, to work
in the Associate CIO, Enterprise Services, organization.† In this capacity and in response to a prior
Treasury Inspector General for Tax Administration report,[19] the configuration management
staff is working to develop a MITS-wide configuration management process that
will include controls for change requests.†
Until this process is in place, the MeF project configuration management
activities will be coordinated between the project team and the configuration
management staff.

As the
BSMO assumes the program manager role for more modernization projects, it needs
to update the configuration management processes to reflect this role.† Without an effective process to monitor
whether change requests are timely approved and implemented, there is a
potential the project capabilities will not be effectively delivered.

The MeF projectís Work Breakdown Structure does not reflect all
change request activities

The
work breakdown structure[20] is a tool to manage project
development plans and capture the projectís history.† The various levels of the work breakdown
structure help communicate the projectís status to team members and
stakeholders and identify accountability to the level of detail required for
managing and controlling the project.†
These levels range from the overall project objectives (upper levels of
the work breakdown structure) to the details of the projectís work (lower
levels of the work breakdown structure). †The upper levels provide logical summary
points for assessing performance accomplishments, as well as measuring cost and
schedule performance.

The MeF
projectís Work Breakdown Structure was not updated to reflect all of the
mandatory change requests received.† We
reviewed the MeF Release 3.1 mandatory change requests submitted in Calendar
Year 2004 for the 2004 tax year changes.†
We found the Work Breakdown Structure included only 10 of the 27 change
requests submitted.

The 17
mandatory change requests received after August 1, 2004, were not included in
the Work Breakdown Structure.† The MeF
project team advised there was not enough time to update the Work Breakdown
Structure with the change requests because they were submitted close to the MeF
Release 3.1 January 10, 2005, deployment date.

The MeF
project team currently uses the contractorís implementation schedules to
determine when change requests will be implemented.† These schedules allow the project team to
manage the implementation of segments of the project development, including the
changes requested.† These schedules do
not track the resources needed to develop the project segments.† Without updating the work breakdown structure
with information about the impact of implementing the changes requested, the
project team will have difficulty determining the:

Allocation of
available development resources to efficiently and effectively implement
all necessary project requirements.

Trends in
resources needed to implement change.

Recommendations

Recommendation 2:†
To help manage the implementation of change requests and the subsequent
impact on the overall project development, the CIO should assign the Associate CIO,
Enterprise Services, to update and formalize the process to monitor change
requests throughout the MITS organization.†
These updates need to include direction for projects unable to make full
use of the PRIME contractorís Change Request Tracking System.

Managementís Response:† The CIO agreed there were inaccuracies
resulting from the process to control change requests to the MeF project
applications and has since corrected those inaccuracies as well as provided
direction to the projects responsible for the maintenance and tracking of the change
requests.

Recommendation
3:† To help manage the implementation of change
requests and the subsequent impact on the overall project development, the CIO
should establish
requirements for including change requests into the related work breakdown
structure to provide the ability to allocate resources and provide a baseline
for future change request plans.

Managementís Response:† The CIO
disagreed with the recommendation to control change requests in the work
breakdown structure, stating the work breakdown structure
is a planning tool to identify the tasks that need to be accomplished and the
relationships between those tasks. †In
lieu of the work breakdown structure, the MeF project team relies on the build schedules,
change request impact assessments, and change request status sheets maintained
by the project to track the implementation of change requests and the
subsequent impact on the overall project development.

Office of Audit Comment:† The Project Management Institute describes the work breakdown
structure as an aid to identify accountability to the level of detail required
for managing and controlling the project.†
During the audit, the MeF project team stated they stopped doing updates
to the work breakdown structure due to resource constraints; however, the
project team now states they develop only a baseline work breakdown
structure.† This concerns us because they
may not be able to adequately consider the effect of change requests with major
staffing implications.

To be
prepared for corporate and tax-exempt organization return filing deadlines,[21] the MeF project had to implement
mandatory change requests requiring tax form changes to the MeF application as they
were received.† The MeF project manager
provided direction for developers to begin work on some of the submitted
mandatory change requests prior to the official approval to achieve a timely
implementation.† The project manager
directed these actions because the change requests were received late in the
development cycle.

The
IRSí Legislative Analysis, Tracking, and Implementation Services office is
responsible for planning and monitoring the implementation of legislation having
a significant impact on the IRS.† This office
uses the Legislative Implementation Tracking System, a planning and monitoring
system for tracking the activities to implement tax legislation within the IRS.

Requests
for Information Services[22] are prepared for
all hardware and/or software changes (including legislative changes) to IRS
systems.† To be able to manage its inventory of processing changes,
the Business Systems Development organization[23] has deadlines for submitting
Requests for Information Services to be able to plan and implement system
changes timely.†

Currently, the BSMO does not
have established deadlines for submission of change requests and does not
regularly coordinate with the Legislative
Analysis, Tracking, and Implementation Services office.†
If the recurring
change requests are not anticipated and enforced deadlines are not established
for the submission of mandatory change requests, planned requirements may be
deferred or delays may occur in the delivery of the current release.

Management Action:† The project team is now taking steps to work
with its customers to anticipate future mandatory change requests that would
affect the MeF project.† These steps are
in process because the project was frequently reacting to the receipt of unexpected
mandatory change requests and needed to revise work plans to develop them in
time for deployment.

Recommendations

Recommendation 4:†
To help provide an
efficient and effective process for implementing mandatory change requests, the
CIO should establish a communications process with the Legislative Analysis,
Tracking, and Implementation Services office and the business operating divisions to
ensure the project teams are aware of all anticipated changes which affect
current system development activities.†
The process should include monitoring the Legislative Implementation
Tracking System for pending and enacted legislation and related Requests for
Information Services; participating in Legislative Analysis, Tracking, and
Implementation Services office/business operating division meetings assessing
the impact of pending and enacted legislation; and coordinating with the
business operating divisions for in-process legislative Requests for
Information Services.

Managementís Response:† The CIO agreed with the recommendation to help ensure the
project team is aware of all anticipated changes affecting current system
development activities.† The
Electronic Tax Administration (ETA) organization, acting as the MeF Business Requirements Director, has a process in
place to monitor the Legislative Implementation Tracking System for pending and
enacted legislation and to reflect those changes as updated business
requirements.† Through the Reverse Request
for Information Services process, the ETA organization reviews requests from
other projects to determine if there is an impact on the MeF project.† Monitoring the possible legislative changes
as well as reviewing in-process Requests for Information Services will enable the
ETA organization to help determine the prioritization schedule for delivery of
business requirements to the BSMO.

Recommendation
5:† To help provide an efficient and effective process for
implementing mandatory change requests, the CIO should direct the BSMO to follow
the Business Systems Development organizationís concepts of establishing
deadlines for submitting and approving Requests for Information Services to
help ensure timely implementation of mandatory change requests.

Managementís Response:†The CIO agreed with the
recommendation, stating the ETA organization
follows the established Business System Development Request for Information Services
schedule, as outlined in the Internal Revenue Manual, for projects being
developed by contractors to help ensure
timely implementation of change requests.†
The MeF project is not explicitly listed in the Internal Revenue
Manual exhibit, but the ETA organization applies this schedule for MeF project
change requests.† Further, the ETA organization
is establishing a Forms Change Committee to gain management control over the annual forms
change process.† This Committee expects
to convene the kick-off meeting in September 2005.

The overall objective of this review was to determine
whether the Modernized e-File (MeF) project sufficiently addressed issues to
ensure successful deployment of future releases and accurately reported its
expected benefits to external stakeholders.†
This review is part of the Treasury Inspector General for Tax
Administrationís Fiscal Year 2005 Information Systems Programs audit plan for
reviews of the Internal Revenue Serviceís modernization efforts. †To accomplish this objective, we:

I.Determined the
status of MeF releases[24] to verify that planned capabilities were
still intended to be delivered.

B.Interviewed the MeF project team and reviewed
documentation to determine the status of plans for delivering the capabilities
needed for the Federal/State Single Point Filing System[26] in MeF Release 3.2.[27]

C.Interviewed the MeF project team and reviewed
documentation to obtain the status of plans to develop and deploy the remaining
MeF releases.

II.Reviewed previously
identified risks and issues to determine whether they were adequately resolved
and their impact on the delivery of future MeF releases.† To determine the effect of unanticipated
changes to MeF Release 3.1 project development activities, we reviewed all 27 Release 3.1 mandatory change
requests submitted in Calendar Year 2004.†
Of the 27 mandatory change requests, only 22 included approval and
implementation dates on the Change
Request Tracking System.

III.Determined
how accurately the MeF project accomplishments were reflected in information
provided to external stakeholders.

The following tables present the Modernized e-File (MeF)
requirements contained in the current MeF System Requirements Report (Table 1)
for all releases[28]
and the System Integration and Testing[29]
reports, which includes the Requirements Traceability Verification Matrices for
Releases 1, 2, and 3.1 (Table 2).† These
tables illustrate the different sets of requirements for the MeF System.

Table 1:
†System Requirements Report As of October
20, 2004

Requirement
Number

Requirement

MeFP.1.1

The MeF System shall
support the transmission of tax returns/documents through the Registered User
Portal[30] at
sustained MeF peak hour loads of
15 concurrent MeF transmitters, each transmitting a file of average size
16 megabytes, at an average speed of 1.544 megabits per second.

MeFP.1.2

The MeF System shall
support the request and delivery at the Registered User Portal for a list of Electronic
Taxpayer Identification Numbers[31]
from Third Party Data Store within 5 seconds, 95 percent of the time, at
sustained MeF peak hour loads of 15 concurrent users.

The MeF System shall
support the decompression of a Transmission File at the Registered User
Portal within 5 seconds, 95 percent of the time, at sustained MeF peak hour
loads of 15 concurrent users, with an average file size of 16 megabytes.

MeFP.1.3.2

The MeF System shall
perform the virus check at the Registered User Portal of a decompressed
transmission file within 10 seconds, 95 percent of the time, under sustained
MeF peak hour loads of 15 concurrent users, with an average file size of 35 megabytes.

MeFP.1.3.3

The MeF System shall
support the Electronic Taxpayer Identification Numbers check and the
Test/Production Indicator Check at the Registered User Portal within 3
seconds, 95 percent of the time, under sustained MeF peak hour loads of 15
concurrent users.

MeFP.1.3.4

The MeF System shall
support the compression of files in the Registered User Portal within 5
seconds, 95 percent of the time, under sustained MeF peak hour loads of 15
concurrent MeF users with an average file size of
35 megabytes (uncompressed).

MeFP.1.3.5

The MeF System shall
support the transmission of a Transmission File from the Registered User
Portal to the platform hosting the MeF Application within 10 seconds, 95
percent of the time, under sustained MeF peak hour loads of
15 concurrent users.

MeFP.1.3.6

The MeF System shall
support sending of the Transmission File Receipt (Global Transaction Key) or
error page to the MeF user from the Registered User Portal within 2 seconds,
95 percent of the time, under sustained MeF peak hour loads of 15 concurrent
users.

MeFP.1.4

The MeF System shall
support the display of fixed-content webpages, of average size 60 kilobytes,within 3 seconds, 95 percent of the time,
under sustained MeF peak hour loads of 15 concurrent users.

MeFP.1.5

The MeF System shall
support acknowledging secure receipt of 15 files in the MeF Application
mailbox within 30 seconds each, 95 percent of the time, with an average file
size of 20 kilobytes.

MeFP.1.6

The MeF System shall
support the downloading of a Combined/Compressed acknowledgement file from
the Electronic Taxpayer Identification Numbers secure object repository
mailbox at T1 speed (1.544 megabits per second),
95 percent of the time, under sustained MeF peak hour loads of 15 concurrent
users.

MeFP.1.7

The MeF System shall support
the compressing of 10 acknowledgement files per user, of average size 20 kilobytes
each, within 30 seconds, 95 percent of the time, under sustained MeF peak
hour loads of 15 concurrent users.

MeFP.2.1

The MeF System shall
support the MeF Applicationís validation and processing of Transmission Files
in 6 hours, 95 percent of the time, under sustained MeF peak loads of 78
Transmission Files per hour.

MeFP.3.1

The MeF System shall support
the processing for MeF Request, Return and Display, of the first page of tax
returns/documents with 1 to 10 pages within
6 seconds, 95 percent of the time, under sustained peak hour loads of
30 concurrent users.

MeFP.3.2

The MeF System shall
support the processing for MeF Request, Return and Display, of the first page
of tax returns/documents with 11 to 50 pages within
8 seconds, 95 percent of the time, under sustained peak hour loads of
30 concurrent users.

MeFP.3.3

The MeF System shall
support the processing for MeF Request, Return and Display, of the first page
of tax returns/documents with 51 to 100 pages within 13 seconds, 95 percent
of the time, under sustained peak hour loads of
30 concurrent users.

MeFP.3.4

The MeF System shall
support the processing for MeF Request, Return and Display, of the first page
of tax returns/documents with 101 to 500 pages within 25 seconds, 95 percent
of the time, under sustained peak hour loads of
30 concurrent users.

MeFP.3.5

The MeF System shall
support the processing for MeF Request, Return and Display, of the first page
of tax returns/documents with 501 to 1,500 pages within 45 seconds, 95
percent of the time, under sustained peak hour loads of
30 concurrent users.

MeFP.3.6

The MeF System shall
support the processing for MeF Request, Return and Display, of the first page
of tax returns/documents with 1,501 to 3,000 pages within 80 seconds, 95
percent of the time, under sustained peak hour loads of
30 concurrent users.

MeFP.3.7

The MeF System shall
support the processing for MeF Request, Return and Display, of the first page
of tax returns/documents with 3,001 to 36,000 pages within 240 seconds, 95
percent of the time, under sustained peak hour loads of
30 concurrent users.

MeFP.3.8

The MeF System shall
support the total processing time for MeF Request, Return and Display, for
each subsequent page (after the first page) within
3 seconds, 95 percent of the time, under sustained MeF peak hour loads of
30 concurrent users.

MeFP.4.0

The MeF System shall
support, on a peak day, the generation of the MeF batch reports specified in
Section 7 of the Use Case Specification Version 1.7 (run in parallel groups)
within the nightly processing window between midnight and 6 a.m., 95 percent of
the time.

MeFP.4.1

The MeF System shall
support the generation of batch and on-demand reports under sustained loads
of 50 concurrent MeF users.

MeFP.4.1.1

The MeF System shall
support Internal Revenue Service (IRS) employees in the Employee User Portal displaying
pre-generated batch reports in the display of the first page within 10
seconds, 95 percent of the time, under MeF peak loads of 50 concurrent users.

MeFP.4.1.2

The MeF System shall
support IRS employees in the Employee User Portal displaying pre-generated
batch reports in the display of each subsequent page after the first page
within 3 seconds, 95 percent of the time.

MeFP.4.1.3

The MeF System shall
support the concurrent generation of on-demand reports, specified in Section
7 of the Use Case Specification Version 1.7, requested by 5 concurrent MeF
users, within 3 minutes, 95 percent of the time.

MeFP.5.0

The MeF System shall
support receipt generation of a work request confirmation from the Enterprise
File Transfer Protocol Network Server/Enterprise File Transfer Utility for MeF
file transfer requests within
10 seconds, 95 percent of the time, under sustained peak hour loads.

During the first year,
the MeF system shall be capable of processing the number of tax returns as
specified in the MeF/Infrastructure
Shared Services Performance Requirements document.

Deferred to
Release 2; Passed in Release 2

NF1.3.6

The system shall scale
as the database storage and return volumes increase based on forecasted
increases of tax return volumes as specified in the MeF/Infrastructure Shared Services Performance Requirements
document.

Deferred to
Release 2; Passed in Release 2

NF1.3.7

The maximum number of
supported, concurrent users shall be 25.

Deleted

NF1.3.8

Concurrent accesses
from multiple users shall be supported.

Deferred to
Release 2; Passed in† Release 3.1

Release

Requirement Number

Requirement

Test Result

Release 1 continued

NF1.3.9

The MeF System shall provide the following response
times for the Request and Display application to display the Return Tree and
the first page of the return through the Employee User Portal. †Response time is based on the number of
documents in a return. †Measurement
begins when the transaction reaches the web server and ends when it leaves
the web server on the return trip. †It
does not include the time required to connect to Database 2 (proprietary IBM
database software) on the Modernized Tax Return Database mainframe to
retrieve return data. †Response times,
based on the maximum number of documents in a return, are as follows:

Up to 10 documents: †3 seconds + infrastructure times.

Up to 50 documents: †5 seconds + infrastructure times.

Up to 100 documents: †8 seconds + infrastructure times.

Up to 500 documents: †15 seconds + infrastructure times.

Up to 1,500 documents: †30 seconds + infrastructure times.

Up to 3,000 documents: †60 seconds + infrastructure times.

Up to 36,000 documents: †220 seconds + infrastructure times.

For subsequent forms/schedules, the system will provide 2 seconds +
infrastructure times response times.

Infrastructure Shared
Services shall provide infrastructure that supports a total of
50 concurrent internal users access to
MeF Business Objects reports and data.

Waived

BUSI114

Infrastructure Shared
Services shall provide infrastructure to support the filing of returns from a
total of 2,500 large corporations in a peak month with returns of an average
size of
20 megabytes.

Waived

BUSI114.1

Infrastructure Shared
Services shall provide infrastructure to support the filing of returns with
an average size of 20 megabytes from a total of 2,500 corporations in a peak
month.

Waived

Release

Requirement Number

Requirement

Test Result

Release 1 continued

BUSI115

Infrastructure Shared
Services shall provide infrastructure to support the filing of returns from a
total of 32,250 medium-sized corporations in a peak month with medium returns
with average size of 2 megabytes.

Waived

BUSI115.1

Infrastructure Shared
Services shall provide infrastructure to support the filing of returns averaging
in size of 2 megabytes from a total of 32,250 corporations in a peak month.

Waived

BUSI98.1.25

During the first year
the system shall be capable of processing approximately 65,000 electronically
filed Forms 1120 and 1120S.[35]

Infrastructure Shared
Services shall support the infrastructure design and implementation for the
MeF Applicationís validation and processing of a file of 1 or more Form 990-PF
returns for up to 100 returns or 7.55 megabytes from ingestion at Registered
User Portal through storing in the Modernized Tax Return Database.

Passed

BUSI13.1

Infrastructure Shared
Services shall support the infrastructure design and implementation for the
transmission through the Registered User Portal, of Forms 7004,[38]
with transmission files containing extension forms of average size of
1-5 pages or 5.5 kilobytes (distributed
95 percent at 5 kilobytes and 5 percent at
15 kilobytes).

Deferred to Release
3.1 Post Initial Operational Capability

BUSI13.2

Infrastructure Shared
Services shall support the infrastructure design and implementation for a
peak filing of 3,000, Form 7004 applications
(16.5 megabytes) in 5 days mid-March with the maximum 3,000 (16.5 megabytes)
within peak hours from 8 a.m. to 10 p.m.

Passed

BUSI13.4

Infrastructure Shared
Services shall support the infrastructure design and implementation for the
MeF Applicationís validation and processing of a file of 1 or more Form 7004
applications for up to 100 applications or 505 kilobytes from the placing on
the MeF platform through storing in the Modernized Tax Return Database.

The
Enterprise Life Cycle defines the processes, products, techniques, roles,
responsibilities, policies, procedures, and standards associated with planning,
executing, and managing business change.†
It includes redesign of business processes; transformation of the
organization; and development, integration, deployment, and maintenance of the
related information technology applications and infrastructure.† Its immediate focus is the Internal Revenue
Service (IRS) Business Systems Modernization (BSM) program.† Both the IRS and the PRIME contractor1 must follow the Enterprise Life Cycle in developing/acquiring business
solutions for modernization projects.

The
Enterprise Life Cycle framework is a flexible and adaptable structure within
which one plans, executes, and integrates business change.† The Enterprise Life Cycle process layer was
created principally from the Computer Sciences Corporationís Catalystģ methodology.2†It is intended to improve the
acquisition, use, and management of information technology within the IRS;
facilitate management of large-scale business change; and enhance the methods
of decision making and information sharing.†
Other components and extensions were added as needed to meet the
specific needs of the IRS BSM program.†

Enterprise Life Cycle Processes

A
process is an ordered, interdependent set of activities established to
accomplish a specific purpose.† Processes
help to define what work needs to be performed.†
The
Enterprise Life Cycle methodology includes two major groups of processes:

Life-Cycle Processes, which are organized into
phases and subphases and address all domains of business change.

Management Processes, which are organized into management areas and
operate across the entire life cycle.

Enterprise Life-Cycle Processes

The
chart was removed due to its size.† To
see the chart, please go to the Adobe PDF version of the report on the TIGTA
Public Web Page.

Life-Cycle
Processes

The life-cycle processes of the Enterprise Life
Cycle are divided into six phases, as described below:

∑Vision and Strategy - This phase establishes the
overall direction and priorities for business change for the enterprise.† It also identifies and prioritizes the
business or system areas for further analysis.

∑Architecture - This phase establishes the
concept/vision, requirements, and design for a particular business area or
target system.† It also defines the
releases for the business area or system.

∑Development - This phase includes the
analysis, design, acquisition, modification, construction, and testing of the
components of a business solution.† This
phase also includes routine planned maintenance of applications.

∑Integration - This phase includes the
integration, testing, piloting, and acceptance of a release.† In this phase, the integration team brings
together individual work packages of solution components developed or acquired
separately during the Development phase. Application and technical
infrastructure components are tested to determine if they interact properly.† If appropriate, the team conducts a pilot to
ensure allelements of the business
solution work together.

∑Deployment - This phase includes
preparation of a release for deployment and actual deployment of the release to
the deployment sites.† During this phase,
the deployment team puts the solution releaseinto operation at target sites.

The Operations and Support
phase includes the scheduled activities, such as planned maintenance, systems
backup, and production output, as well as the nonscheduled activities, such as
problem resolution and service request delivery, including emergency unplanned
maintenance of applications.† It also
includes the support processes required to keep the system up and running at
the contractually specified level.

Besides the life-cycle processes, the Enterprise
Life Cycle also addresses the various management areas at the process
level.† The management areas include:

∑IRS Governance and
Investment Decision Management - This area is responsible
for managing the overall direction of the IRS, determining where to invest, and
managing the investments over time.

∑Program Management and
Project Management - This area is responsible for organizing, planning,
directing, and controlling the activities within the program and its
subordinate projects to achieve the objectives of the program and deliver the
expected business results.

∑Architectural
Engineering/Development Coordination - This area is responsible
for managing the technical aspects of coordination across projects and
disciplines, such as managing interfaces, controlling architectural changes,
ensuring architectural compliance, maintaining standards, and resolving issues.

∑Management Support Processes
- This
area includes common management processes, such as quality management and
configuration management that operate across multiple levels of management.

Milestones

The Enterprise Life Cycle establishes a set of repeatable
processes and a system of milestones, checkpoints, and reviews that reduce the
risks of system development, accelerate the delivery of business solutions, and
ensure alignment with the overall business strategy.† The Enterprise Life Cycle defines a series of
milestones in the life-cycle processes.†
Milestones provide for ďgo/no-goĒ decision points in the project and are
sometimes associated with funding approval to proceed.† They occur at natural breaks in the process
where there is new information regarding costs, benefits, and risks and where
executive authority is necessary for next phase expenditures.

There are five milestones during the project life
cycle:†

∑Milestone 1 - Business Vision and Case for Action.†
In
the activities leading up to Milestone 1, executive leadership identifies the
direction and priorities for IRS business change.† These guide which business areas and system
development projects are funded for further analysis.† The primary decision at Milestone 1 is to
select BSM projects based on both the enterprise-level Vision and Strategy and
the enterprise architecture.

∑Milestone 2 - Business Systems Concept and Preliminary
Business Case.† The activities leading up to
Milestone 2 establish the project concept, including requirements and design
elements, as a solution for a specific business area or business system.† A preliminary business case is also
produced.† The primary decision at
Milestone 2 is to approve the solution/system concept and associated plans for
a modernization initiative and to authorize funding for that solution.

∑Milestone 3 - Business Systems
Design and Baseline Business Case.† In the activities leading up to
Milestone 3, the major components of the business solution are analyzed and
designed.† A baseline business case is
also produced.† The primary decision at
Milestone 3 is to accept the logical system design and associated plans and to
authorize funding for development, test, and (if chosen) pilot of that
solution.

∑Milestone 4 - Business Systems Development and Enterprise Deployment
Decision.† In
the activities leading up to Milestone 4, the business solution is built.† The Milestone 4 activities are separated by
two checkpoints.† Activities leading up
to Milestone 4A involve further requirements definition, production of the
systemís physical design, and determination of the applicability of fixed-price
contracting to complete system development and deployment.† To achieve Milestone 4B, the system is
integrated with other business systems and tested, piloted (usually), and
prepared for deployment.† The primary
decision at Milestone 4B is to authorize the release for enterprise-wide
deployment and commit the necessary resources.

∑Milestone 5 - Business Systems Deployment and Postdeployment Evaluation.† In the activities leading up to
Milestone 5, the business solution is fully deployed, including delivery of
training on use and maintenance.† The
primary decision at Milestone 5 is to authorize the release of
performance-based compensation based on actual, measured performance of the
business system.

[3]Corporations filing at least 250 returns and
with assets of $50 million or more and exempt organizations filing at least 250
returns with assets of $100 million or more with taxable years ending on or
after December 31, 2005, must file electronically.† Corporations and exempt organizations filing
at least 250 returns with assets of $10 million or more with taxable years
ending on or after December 31, 2006, must file electronically.

[4] A change
request is a documented request to assess the impact of a proposed change to a
projectís defined requirement or process.

[5]A work breakdown structure is a
deliverable-oriented grouping of project elements that organizes and defines
the total scope of the project.

[9] The
Enterprise Life Cycle establishes a set of repeatable processes and a system of
reviews, checkpoints, and milestones that reduce the risks of systems
development and ensures alignment with the overall business strategy.†

[10] The
Federal/State Single Point Filing System will permit transmitters to submit
multiple Federal and State return types within one transmission.

[11] An FTE
is a measure of labor hours in which 1 FTE is equal to 8 hours multiplied by
the number of compensable days in a particular fiscal year.† For Fiscal Year 2004, 1 FTE was equal to
2,096 staff hours.† For Fiscal Year 2005,
1 FTE is equal to 2,088 hours.

[12]Corporations filing at least 250 returns and
with assets of $50 million or more and exempt organizations filing at least 250
returns with assets of $100 million or more with taxable years ending on or
after December 31, 2005, must file electronically.† Corporations and exempt organizations filing
at least 250 returns with assets of $10 million or more with taxable years
ending on or after December 31, 2006, must file electronically.

[13]
Integration testing ensures all system components (hardware and software) are
working correctly and collectively with other related or dependent systems.

[14] A
performance requirement is based on current business processing time and is
considered when the technical requirements of performance are defined.

[15] A
change request is a documented request to assess the impact of a proposed
change to a projectís defined requirement or process.

[16]
Configuration management involves establishing proper control over approved
project documentation, hardware, and software and assuring changes are
authorized, controlled, and tracked.† The
Business Systems Modernization (BSM) project teams work with configuration
management offices staffed by the BSMO, PRIME contractor, and the MITS
organizationís Information Technology Services office.† The BSM project teams also work with a
non-PRIME contractor configuration management office.

[17]To facilitate success of its modernization
efforts, the IRS hired the Computer Sciences Corporation as the PRIME
contractor and integrator for the BSM program and created the BSMO to guide and
oversee the work of the PRIME contractor.

[18]
Mandatory change requests involve changes to the MeF system applications that
must be made to accept the tax return filings.†
The changes generally involve updates to tax forms for the current tax
year.

[19]Additional Actions Are Needed to Establish
and Maintain Controls Over Computer Hardware and Software Changes (Reference
Number 2004-20-026, dated December 2003).

[20]A work breakdown structure is a
deliverable-oriented grouping of project elements that organizes and defines
the total scope of the project.

[21]
Corporate and tax-exempt organization returns have annual filing due dates on
March 15 and May 15, respectively.

[22] A Request for Information Services
is a formal memorandum requesting Business Systems Development organization support for changes to current or planned programming, corporate
hardware, commercial off-the-shelf software applications, system testing, and
other MITS organization activities used in processing tax information.†

[25] Release
3.1 plans to incorporate Return of Private Foundation or Section 4947(a)(1)
Nonexempt Charitable Trust Treated as a Private Foundation (Form 990-PF) and
the ability to file extensions for U.S. Corporation Income Tax Return (Form
1120) and U.S. Income Tax Return for an S Corporation (Form 1120S). †

[26] The
Federal/State Single Point Filing System will permit transmitters to submit
multiple Federal and State return types within one transmission.

[27] Release
3.2 plans to add the Federal/State Single Point Filing System platform and the
Federal/State components for Form 1120, Form 1120S, and Return of Organization
Exempt From Income Tax (Form 990).

[31]
Taxpayer Identification Numbers are nine-digit
numbers assigned to taxpayers for identification purposes.† Depending upon the nature of the taxpayer, it
is an Employer Identification Number, a Social Security Number, or an
Individual Taxpayer Identification Number.

[32] Initial
Operational Capability provides a set of functional
and performance characteristics and threshold parameters for the specific release
of a system or application.

[36]To facilitate success of its modernization
efforts, the IRS hired the Computer Sciences Corporation as the PRIME

contractor and
integrator for the Business Systems Modernization program and created the
Business Systems Modernization Office to guide and oversee the work of the
PRIME contractor.

[37] Form
990-PF is the Return of Private Foundation or Section 4947(a)(1) Nonexempt
Charitable Trust Treated as a Private Foundation.

[38] Form
7004 is the Application for Automatic Extension of Time To File Corporation
Income Tax Return.

1To facilitate
success of its modernization efforts, the IRS hired the Computer Sciences
Corporation as the PRIME

contractor and
integrator for the BSM program and created the Business Systems Modernization
Office to guide and

oversee the work of
the PRIME contractor.

2 The IRS
has acquired a perpetual license to Catalystģ as part of the PRIME contract, subject to certain restrictions.
The license includes rights to all enhancements made to Catalystģ by the Computer Sciences
Corporation during the contract period.